Public land deals have both benefits and pitfalls

The city routinely bids public land out to private companies. Instead of money, the city demands amenities like affordable housing, workforce development, or a library. Sometimes, these deals work well. Sometimes, they're just a bad deal, or developers renege on promises.

Minnesota-Benning project. Image from DMPED.

WAMU reporters Patrick Madden and Julie Patel have been delving into this issue in a series this week. Their Tuesday and Wednesday installments look at the ways public land deals and subsidies can go wrong.

Their week-long series frames the issue around the inappropriate influence of money in politics. If campaign donors get a leg up in the competition for deals, that is a serious problem, and good for Madden and Patel for giving it attention. However, campaign cash is only one of several possible reasons these deals can turn out bad. At the same time, they can also bring valuable benefits as well.

Land deals aren't just a giveaway

The Tuesday headline was "Million-Dollar Properties, $1 Deals." The lede talks about 5 projects that went to Donatelli Development and Blue Skye Construction. "The appraised value of all this public land, according to city records: $17.5 million. The price paid by the developers to the city, a little more than a parking ticket: $88."

Sounds like a massive handout! Where can I get a few acres for a buck? But later, Madden explains that it's not quite so simple. The deals come with big strings. In particular, they often have to build affordable housing.

Certainly there's some profit in these deals, and if that profit goes to the biggest donors, that's a big problem. However, Donatelli's profit isn't anywhere close to the $17,499,912 that the intro might lead people to believe.

Madden gives a table of the top 5 land deals:

Project

Payment to DC

Value of land

Contributionsby dev. team

Hine Jr. HS

$21,800,000.00

$44,700,000.00

$194,045.00

West End (Library & Fire Station)

$18,000,000.00

$30,018,000.00

$127,295.00

The Wharf

$1.00

$95,000,000.00

$126,732.81

Capital Fire Station

$15,000,000.00

$40,300,000.00

$123,646.00

Minnesota-Benning (Phase 2)

$10.00

$13,176,000.00

$122,076.00

This table isn't really, complete, however, without factoring in what the development teams have to spend on the public amenities that go into the buildings.

Project

Pmt. to DC

Value of land

Public amenities

Hine Jr. HS

$21,800,000.00

$44,700,000.00

20% affordable housingC Street & plaza

West End

$18,000,000.00

$30,018,000.00

New library, fire station

The Wharf

$1.00

$95,000,000.00

15% affordable housing

Capital Fire Station

$15,000,000.00

$40,300,000.00

(can't find this)

Minnesota-Benning

$10.00

$13,176,000.00

100% affordable housing

What makes a good deal?

Figuring out how much those public amenities are worth, however, is the tricky part, and whether the government is getting a good deal. People often disagree about how much affordable housing is fair. In the West End, DC is giving Eastbanc two parcels, which now contain a library and fire station. Eastbanc can build housing, but has to also build a new library and fire station.

Eastbanc is also building 52 units of affordable housing with an additional $7 million subsidy from the city. DC's zoning commission then let Eastbanc out of the Inclusionary Zoning affordable housing requirement on one of the two parcels, after the developer and officials argued that the value the city is getting from the new library and fire station uses up all the value of the property.

Under the current leadership of DMPED's Victor Hoskins, the city has been seeking less affordable housing from its public land deals, and more direct revenues.

Sometimes public officials don't push for important amenities

DC economic development officials are often quite eager to get a deal done, even at the cost of important amenities. At Minnesota Avenue and Benning Road, a DDOT plan for the area recommended a new road connection to expand the grid around Minnesota Avenue Metro and a highly congested intersection.

One of the two bidders included the connection, while the winner, Donatelli, did not. Representatives of Mayor Fenty's Deputy Mayor for Planning and Economic Development (DMPED) then joined Donatelli in lobbying against the concept or even reserving the right of way for a future street. Maybe it was too expensive or difficult, or maybe it was an important amenity that officials just didn't bother to push for.

Madden and Patel discusses some other problems with public land development deals like this. A law requires the developers to hire small and minority-owned businesses. Sometimes they don't. (Other times, those companies are just shells that give a payout to owners while a larger firm actually does the work.)

Patel writes,

A WAMU investigation of 110 D.C. developments that received $1.7 billion in subsidies found:

Flaws with benefits pledged for about half

A third missed requirements on hiring local businesses, or the city didn't have paperwork for them

Another 15 percent downsized or delayed benefits, costing the city millions in lost revenue and others arguably didn't need the subsidy in the first place

Less than 5 percent of the subsidies approved were for the city's poorest areas, wards 7 and 8.

The series has an overarching thesis that much of this comes about because the developers are dishing out campaign cash. That certainly may be part of it, but it's not the only reason. Plus, Aaron Wiener plotted donations against the size of deals and found only a weak correlation.

Cash probably does have an effect. So do other factors. Sometimes economic development officials or politicians just want to get the deal done because a ribbon-cutting is appealing while a project sitting unfinished is a hassle.

Public land deals, though often bungled, are still necessary

Madden says, "Activists and even some council members have asked why the city just doesn't hold a public auction for these properties and award them to the highest bidder." That's an option, but then there would be no amenities. Where would the new library go? Making it part of a larger mixed-use project is probably the best way to use the land, since a library doesn't need to take up an entire building. Wouldn't we be better off with a broader mix of uses that maximize the value of this site?

DC could just rent space in an office building for a library, perhaps, but is that space going to be well-suited for a library and in the right location? Plus, that would mean library rent goes up as neighborhoods become more desirable, creating a risk that future budget cuts imperil libraries entirely instead of just shortening their hours. Meanwhile, there's definitely no spec building out there that can fit a fire station.

Others, like Parisa Norouzi of Empower DC, feel that public land should never go to private uses. She'd like DC to keep all of the publicly-owned land for schools, libraries, and so on. Many other activists also view any public-private partnership deals with suspicion, and don't want a private company building a library.

These public-private deals, imperfect as they are, seem to be a compromise between these two views. The public gets something for its land, but the land can also accommodate housing and offices when the public doesn't need every square foot for public use.

Still, it's important that public officials push to get the best deal for the city, and ensure that winning bidders keep the promises that helped them win bids in the first place. When officials don't, sometimes it's because of campaign cash, but there can be many other reasons as well, which are just as important to combat.

David Alpert is the founder of Greater Greater Washington. He worked as a Product Manager for Google for six years and has lived in the Boston, San Francisco, and New York metro areas in addition to Washington, DC. He now lives with his wife and daughter in Dupont Circle.

I live in a building with a 20% Affordable Dwelling Unit (ADU) requirement. The owners of those units receive a subsidy from the non-ADU owners to help offset monthly condo fees (our building does not offer very many luxury amenities). I understood the rules when I moved in, but I was willing to buy into it because I supported mixed-income buildings. Now the owners of those ADUs are complaining to the city because some of them are underwater on their mortgages and they can not afford to sell, and they can not afford the condo fees (which are comparable to other new condo buildings in DC). What is the City's response? It is rumored (from a reliable source) that they are proposing to change the rules to allow ADU owners to rent out their units at a market rate (previously they could only rent it out to other income-eligible households at a monthly rent that covered their mortgage, taxes, condo fees, etc.). So basically, the City is allowing a select population to take a required affordable housing resource and in essence make money off of it. They rent the ADU at a market rate, and find a cheaper place to live in Virginia...quite a nice monthly profit. I want to know if this is true, and if so, what do other people think of this? What would another alternative be to help ADU owners?

Concerned - A good solution for preventing this problem in future buildings is for the condo association to retain ownership of the parking and rent it out at market rates (with owners guaranteed the right to rent a space). That way the association finances itself mostly with parking fees, and the condo fee is small.

For this to work optimally, minimum parking requirements need to be eliminated, so that the price of parking is not driven down by an artificially inflated supply.

The gutting of the public sector definitely shows up in the poor public return on Community Benefits Agreements. In a perfect world, the private sector would do its thing, and pay taxes & fees so that the public sector can do its thing. Subsidies should be transparent and only through appropriations. That isn't happening anymore, since we've placed terrific financial constraints on the public sector and straightjacketed the private sector through regulations (like zoning). Instead, the public sector flogs off its silver (including development rights) and begs the private sector for a sliver of the proceeds, and the only developers who manage to make money are those most adept at cutting deals that bypass regulations.

"First Source" hiring is something somewhat unique to D.C. that strikes me as rather difficult to enforce -- and, surprise, turns out that it isn't enforced very well. Similarly, applying inclusionary requirements to condominiums is a lot more difficult than applying it to single-family houses or rental apartments, since the governance of condos is already complex.

Of course, coming from pay-to-play Chicago, all of this to-do sounds so terribly small-ball.

As far as First Source goes: isn't the fundamental problem that we have a very large percentage of people in DC who are essentially unhireable? (And I don't use that word glibly, but in the sense that they're very old, very young, have mental health or substance abuse issues, etc...)

None of this makes any sense except as corruption. Example: The Wharf. Land DC probably under-values at $95M is sold for $1 in order to get 15% affordable housing? Ninety-Five Million Dollars?

Of course the leader of the project is Fenty's campaign treasurer.

Minor amenities compared to true land value is just a fig leaf. The public trough in DC is seen as the way to get incomes for friends and family, not any significant employment for working class DC residents or any significant affordable housing for DC low-income residents.

Using the banner of "smart growth" to defend corruption is a dog that will come back to bite.

Julie and Dave's investigation is wonderful, refreshing, and not seen on most developer driven blogs.

Concerned, your point and question are good ones. "So basically, the City is allowing a select population to take a required affordable housing resource and in essence make money off of it." If what you say is true, I would add, "in essence destroy affordable housing." This seems to be similar to the buyouts when apts go condos: a select few cash out, and in the process destroy affordable housing on a larger scale. Anyway, good, if frightening, point. I'm sorry, I don't have an answer.

There's more public benefit to the Wharf than just affordable housing. In particular, the District also gets 12 acres of improved parks & open space, a rebuilt bulkhead in an area prone to flooding, a bikeway along Maine Ave. and a staircase through Banneker Park, three public piers and rebuilt marina facilities.

Valuing some of those pieces:
- Georgetown Waterfront Park is 20% smaller and cost $24M, so parks = $30M
- Hoboken's Pier C Park was $20M, but NYC costs more = $15M for piers
- 218 ADUs at $200K writedown apiece = $43.6M
Those three add up to what otherwise might have cost taxpayers $89M. And in the end, they have.

Sometimes, a large project has unquantifiable big-picture considerations that are outside the scope of WAMU's report. DC USA, for instance, has had an upward effect on surrounding property values and retail sales, builds upon DC's investment in the mid-city subway, and has been a useful proof of concept for other big box stores in the city.

I don't know I've lived in the Columbia Heights area on and off since 2006 and while the Target is great, I don't think that fundamentally was what changed the neighborhood. A whole slew of new housing going to new higher income residents provided the critical mass for redevelopment of the area in my opinion. Don't get me wrong DCUSA is a great amenity and I'm happy it's there when I need it. If anything though I'd say the small business owners/restauranteurs (not to mention proximity to the U St area) do more to promote the neighborhood on a daily basis.

I'm certainly not against large developments, but I'm not convinced we should be footing the bill for them.

Trulee: Yes, many. She pushed hard for IZ in the first place and to keep it from getting watered down. So you could say that every single other IZ building is an example of an exception she did not endorse, because when Adrian Fenty was stalling the regulations which led to buildings getting permits without IZ, she and others were pushing for IZ to go into effect.

"Madden says, "Activists and even some council members have asked why the city just doesn't hold a public auction for these properties and award them to the highest bidder." That's an option, but then there would be no amenities. Where would the new library go?"

Easy: make the building of the library (or whatever amenity(ies) are desired) a requirement of the sale that occurs via the auction.

Sometimes, a large project has unquantifiable big-picture considerations that are outside the scope of WAMU's report. DC USA, for instance, has had an upward effect on surrounding property values and retail sales, builds upon DC's investment in the mid-city subway, and has been a useful proof of concept for other big box stores in the city.

Indeed.

I think WAMU's report has done an excellent job of looking at the correlations here, but what is missing is the acknowledgement that real estate deals are by nature complex.

In the DC USA case, a large part of the subsidy was for the parking garage. The garage was shrunk in size from what zoning would've originally required, but it is still likely too large for the demand (as seen by the underutilization). Yet, the retailers and financiers of the project would not have approved the leases and loans to build it without that subsidy.

Sometimes, that extra subsidy is indeed the difference between a project happening or not. Sometimes, it is not. However, that is a very difficult distinction to make and the mere appearance of 'give-aways' does not account for it.

Its too hard to tell how valuable to the city/costly to the developers the various things like affordable housing, parks etc are. So its hard to see how big the giveaways are, and thus how big a scandal it is.

But sure, promised features need to be delivered, and it would be better if the campaign financing were reformed.

Regardless of the cost particulars, if there is a strong correlation between who donates the most and who gets the most subsidies that is very disturbing (if typical for DC), and I hope GGW can get dig out some more details.

Well, an article like this shows that the situation is more complicated than the WAMU story would lead. I don't know how outraged I should be. I do think that the city needs to step back and fix many of these issues (campaign finance, ways to ensure that developers deliver what they promise, etc.) while if someone says something is simply false (bike lanes prove that DC hates churches) it's easier to speak up and correct them.

tl;dr, I'm disturbed by this but don't have a good answer at the moment.

I think my issue is they seem to be short on details directly tying the subsidies to existing politicians. I mean I guess I'm not happy about connections to the Fenty administration but is there a point in being outraged about something that happened years ago? The problem isn't so much that they've exposed corruption per se but rather a tremendous potential for it. I guess we don't really have the smoking gun(s) yet?

"Using the banner of 'smart growth' to defend corruption is a dog that will come back to bite."

Yes, indeed. Mr. Madden, Ms. Patel and WAMU should expand the series to look at the backstory of the weathervane pivots of DC agencies and the zoning approval process in connection with certain large PUDs like Cathedral Commons in upper NW. It might make for interesting reporting.

I think some people including the author are missing the core issues. These developers are getting huge subsidies on projects to do things that are sometimes required by law. Zoning requires a certain amount of low income units, and developers are allowed to say this is something they should get money for or permission to up-zone a property. Note one of the projects got the zoning board to say they didn't have to meet the zoning requirement of a property's low income legal requirement because they were building it as part of the deal with the city. Any of these projects could have the property bid out with the required amenities. The developer could bid an amount that covers their cost.

The council has known that at best contributions from these developers is a very suspicious, but they have blocked efforts to close the LLC loophole. They like the contributions, and they get to pay the developers back with your tax dollars. I had to laugh every time one of our council members said they weren't influenced by these contributions. Citizens passed tougher laws by referendum and the council got rid of them. They count on people being stupid.

Are these projects complicated, yes, but that only increases the chance that stuff is going on behind the curtain. Bottom line, millions and millions of our tax dollars are going to these people for community benefits they apparently aren't even doing half the time, or sometimes come back and say they need more money before they will do it after they have already been paid. There is no transparent bidding process to see if the city could get a better deal. That part isn't complicated. Sometimes the devil is in the details, and sometimes the details are just a smokescreen.

Campaign contributions are one thing, however I would like to see how much money flooded into the respective Councilmembers constituent services funds. Just my gut, but I think they would dwarf these amounts.

Drumz is correct -- the situation is far more complicated than the WAMU report explains. First of all, for those who say we should just indicate what public amenity we want, and then have an auction -- that is essentially what happens. The project is awarded to the team that provides whatever public benefit the city is requiring in its competitive solicitation AND offers the best price to the city. When a piece of city property is awarded, there must be two public hearings. The first focuses on whether the property is truly surplus or whether there is another appropriate city use that should go there. For the second public hearing, the Office of the Chief Financial Officer (OCFO) does an analysis of whether the price is justified, vis-à-vis the amenity being provided. At that public hearing, the public is permitted to comment on whether they think the deal is justified, and the Council, with the benefit of the OCFO report, can ask questions and require that the developer submit whatever additional info Councilmembers think is necessary. After that, the relevant Council Committee must vote to recommend approval and then the Council must take a separate vote. These are not deals done in the dark of night.

Groups like Empower DC insist that the District hold on to every parcel of land it has ever owned. If DC had done that, we would not have the Newseum, the Verizon Center, the movie theaters, housing, community center and underground parking at the Gallery Place project, affordable housing in the heart of Downtown at the former Convention Center site, or the market rate housing, 300,000 sf of high quality retail and two beautifully constructed public parks under construction on that site. If GSA had not disposed of publicly-owned federal land, we would not have the Hotel Monaco, the Woolly Mammoth Theater, and hundreds of residential units bringing vitality to the streets of Downtown. The vibrancy anchored by these projects has helped to produce annual tax revenue for the city (from property, income, food and beverage, sales and parking taxes)vastly out of proportion to the size of the Downtown, in addition to creating thousands of jobs and making Downtown streets safer by having hundreds of people strolling, shopping, eating at sidewalk cafes, going to the theater and athletic events, etc.

The system isn't broken, but it could use more transparency and accountability. In many cases, the onus is on the media. The information is publicly available, but the media don't bother to report it. An example only briefly mentioned in the WAMU report is the sale of the former Hurt Home. How can it be justified to sell more than an ACRE of land in Georgetown, almost immediately across the street from Dumbarton Oaks and a few blocks from the newly redone Social Safeway, for $364,000???? One can't buy a CONDO in Georgetown for that money, let alone an acre of land with a large building needing only a relatively modest amount of rehab work to turn into 30+ units of housing. That information was readily available, but no media outlet asked the tough questions about why Mayor Fenty's Deputy Mayor for Planning and Economic Development settled for such a low bid. Did any reporter ask whether Fenty's desire not to ruffle the feathers of the well-heeled neighbors played a role in the agreement not to have the successful bidder construct additional units on the vacant land, therefore garnering a higher price for the District?

When one looks more closely at the facts, like those above, or the amount of infrastructure that must be constructed for the Southwest Waterfront, or the cost of building a new library and fire station in the West End, it becomes clear that merely looking at the public records showing some developers make campaign contributions and observing that some of those same developers are successful bidders for public property doesn't really say anything enlightening, or add value to the public's understanding of the public/private development process.

@Washingtonian on May 24, 2013 2:35 am, your screed is mostly wrong, because there is no enforcement of the laudable policies & procedures you catalogued so exhaustively. No. Enforcement. Tell me the last time the IG's office or the AG's office did anything (literally, anything, with or without filing a formal IG report or taking AG court action) to investigate or even inquire about compliance? We'll wait while you hunt down some answers....

I'm struggling with what the alternative scenario should be. The local developers we have are all tainted by association, but they're the ones who understand how the city works (with a touch of corruption).*

Do we turn to rootless, but spotless, national developers? They will just impose their models upon us, which would probably result in efficient but boring places like Pentagon City. Furthermore, by definition they can't take big risks on projects; they're not the sort to invest in "emerging" real estate markets.

Do we just stop development? Let's face it: it's tremendously difficult to placate all of the stakeholders who shape local development. In fact, it's difficult to even *identify* all of the stakeholders who might chain themselves in front of the bulldozers. We've even made it tremendously difficult even to get by-right development -- the very definition of straightforward, by-the-book processes -- done without having to twist arms and negotiate away. A cleaner development process will also have to be an easier development process. Otherwise, our built environment will be frozen and unable to adapt to a fast-changing city and society.

As I argued above, the easiest thing to do would be for the developer to pay market value and for the government to pay cash for what it needs and where it needs them. However, we don't trust our government with our tax dollars, and we definitely don't trust developers to do their thing, so we end up with the broken blended system that we have -- and probably deserve.

@Green Eyeshade: What sort of IG/AG involvement is necessary to make sure that EastBanc delivers a fire station and library? Or that Hoffman raises the grade of the Wharf and builds four public parks/plazas, plus a new riverwalk and three piers? That requires no layers of investigators; it will be patently obvious to anyone on a DCA-bound flight whether those happen.

Less tangible public benefits, like First Source hiring or inclusionary housing requirements, can be altered to improve transparency. The inclusionary system we devised in Chicago places ownership of the units into a land trust, which not only guarantees affordability in perpetuity but also provides a very quick outside check on the process.

And once again, we're left with the problem of how those developments would work under any other scenario. It's kind of impossible for three parties to separately build a vertical mixed-use building: the library, the fire department, and EastBanc could not all simultaneously build on the same site. Even if D.C. did the land development at the Wharf by itself, regrading the site and building the parks and then selling off the finished blocks to others, there's definitely something to be said for planning and building simultaneously -- it ensures greater harmony, it allows the affordable housing to be evenly dispersed, etc.

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